Stocks tumbled around the world and the dollar slumped after the Senate rejected a bailout for American automakers, threatening to deepen the global recession. Treasuries rallied and yields fell to record lows.
In a predictable development, Bloomberg reports that the dollar sank to a 13-year low against the yen in the wake of news that the auto bailout has collapsed. Other drops follow.
S&P futures are down 3.9% (on the heels of yesterday's 2.9% drop). The S&P had been rebounding from an 11-year low. China's CSI index fell to 4.2%. The MSCI world index, which tracks 23 developed markets, is down 1.3 percent so far this morning (45% percent for the year), and the MSCI Emerging Markets index, which is designed to measure the performance of emerging markets, plummeted 3.2% (56% this year). Also today:
Nikkei 225 Average down 5.6%
South Korea's Kospi down 4.4%
Australia's S&P/ASX 200 down 2.4%
Taiwan's Taiex down 3.7%
Singapore's Straits Times Index down 3.5%
China's Shanghai Composite down 3.8%
Hang Seng Index down 5.5%
One Japanese investor had this to say:
"Investors have been betrayed again by U.S. politicians," said Yasuhiro Miyata, who helps manage about $109 billion at DIAM Co. in Tokyo. "Even with the knowledge that we are in the midst of a crisis, they were unable to come to an agreement and investors have decided to abandon ship."
I guess the take away point is hold on. We could be in for a rough Friday.
Update: The NYTimes is reporting a similar downturn in European trading:
The FTSE 100 index in London was down 3.8 percent, the German benchmark stock DAX Index lost 4.7 percent and the Paris-based CAC 40 was 5.2 percent lower.
The Times is also reporting a 5% drop in S&P futures (down from the 3.9% reported by Bloomberg) and citing Bank of America layoffs to the tune of 30000-35000 as another factor (beyond the failed bailout) that might account for these falling numbers.
An investor interviewed by the Times offers this ominous outlook:
The mood music is very dangerous for the markets," said Robin Marshall, a director in London at the financial services firm Smith & Williamson. "Everyone agrees that you need to take capacity out of the auto industry. The question is how it’s managed and whether it exacerbates weak confidence."
He added there were also fears that a bankruptcy in the industry would deepen the deflationary trend that appears to be taking root. That in turn would add to fears that the United States and European economies might enter a protracted slump, as was seen in Japan during the 1990s.
Aeolus notes in the comments that DOW futures are down 325 points.